Commonwealth Development Corporation

HC Deb 10 April 2002 vol 383 cc1-21WH

Motion made, and Question proposed, That the sitting be now adjourned.—[Dan Norris.]

9.30 am

Dr. Julian Lewis (New Forest, East)

This is the first time that a so-called Westminster Hall debate has been held anywhere other than Westminster Hall. As we all know, it is because of the arrangements for the lying in state of the late Queen Mother. It is therefore appropriate that the subject of our first debate since Parliament has resumed is non-partisan and concerns the good will of people in prosperous countries towards those in poor countries.

I shall begin the debate on a local note. The Hampshire Scout Expeditions has been engaged in an expedition to climb Mount Kilimanjaro. Within the past few days, on their way back, the scouts visited poor villages in Tanzania to engage in developmental projects and put something back into the country in return for their adventure. The spirit behind that generous contribution was similar to the spirit in which the 1945–50 Attlee Labour Government set up the Colonial Development Corporation, which subsequently became the Commonwealth Development Corporation.

The raison d'etre behind the corporation was to boost investment for development in some of the world's poorest countries. When the legislation for the part-privatisation of the CDC was debated in the House in 1999, the wish to make it work enjoyed cross-party support, but there was considerable concern that it might not succeed. When the Bill was first debated in Committee, my hon. Friend the Member for South-West Devon (Mr. Streeter), the then shadow Secretary of State for International Development, sounded the clearest possible warning when he said that the new CDC may be the worst of all worlds: it will attract little interest from the private sector and will therefore be undersold, but will be moved away from its developmental objectives over the next few years by shareholder pressure. —[Official Report, Standing Committee D, 19 June 1999; c. 4.]

Ms Diane Abbott (Hackney, North and Stoke Newington)

I sat in on that debate in 1999. Labour Members were assured that the new arrangements would not alter the CDC's traditional developmental role by one jot or tittle. That is the basis on which we voted for the Bill.

Dr. Lewis

The hon. Lady is absolutely right and that was the basis on which the Opposition did not vote against the Bill. However, fears were expressed that the consequences that I have outlined might follow if the arrangements did not work.

Looking back at the record of the proceedings in Committee, two views were expressed about the Bill. The original idea was to have a body that would fill the gap in poorer colonies that were unlikely to attract private investors. I am trying to be as fair as I can by saying that the Government's intention was to convert that body into a bridge between private investors, who might not usually invest in those countries, and the developing countries themselves. However, Bowen Wells, the distinguished former Chairman of the Select Committee on International Development, expressed the view that one purpose of the part-privatisation of the CDC was to reduce competition with the Department for International Development for Treasury funds. The 1999 legislation made it possible to borrow funds from the private sector as well. Unfortunately, the price of doing that seems to be an unacceptable sacrifice of the Department's developmental aid.

The Minister will be aware of the exhaustive examination carried out by The Times and published on 2 February 2002. I will rely on a considerable amount of that material in the remainder of my remarks. The article quoted a senior policy advisor at Oxfam, Tricia Feeny, who said: A lot of (CDCs) African investments are in things like shopping malls stuffed with imported luxury goods, which cater to the wealthy elite or expatriate community. These have a neutral or even negative impact for the poor. In other words, she saw a change in the focus and emphasis on the traditional way in which the CDC had invested in development countries.

During the debates in Committee in 1999, the hon. Member for Richmond Park (Dr. Tonge) expressed great concern that the business principles and investment policy of the CDC were not sufficiently strongly bound into the Bill. Similarly, my hon. Friend the Member for Chesham and Amersham (Mrs. Gillan) pointed out that the first attempt at a public-private partnership by the new Labour Government involved a 50-year-old organisation with £1.2 billion worth of investments in more than 400 businesses in 54 countries.

Sadly, the numbers involved are beginning to shrink. In answers to written parliamentary questions tabled by the shadow Secretary of State, my hon. Friend the Member for Meriden (Mrs. Spelman), the Government admitted last month that the CDC investment in sub-Saharan Africa had declined from £73 million, £72 million and £74 million in 1997–99 respectively, to only £56 million in 2000. For example, investment in Malawi and Uganda had ceased entirely and it seemed no coincidence that the CDC offices had shut down in both countries since 1999.

A written answer from DFID on 19 March 2002 also confirmed the closure of other CDC offices in Peru, Trinidad, Jamaica, Bangladesh, the Philippines and Fiji. Although the part-privatisation has not yet been carried through, the strategy of the new administration appears to be preparatory to completion of the process. The CDC, or, to give it its new identity, CDC Capital Partners, has been jettisoning long-term agricultural investments that traditionally yield returns of 6 to 8 per cent. in favour of funding banks, shopping centres and energy firms that offer much higher rates of return.

Such a process was entirely to be anticipated. The Government assured us that the safeguards would be sufficient, but were they effective enough to stop the process once it had started to roll forward? Conservative Members think that the signs are distinctly discouraging. CDC staff numbers have been cut by some 35 per cent., although it must be said that rewards for those who remain have markedly improved at director and chief executive levels. I believe that the chief executive receives a package worth £250,000 for his three-day week.

Before PPP, the CDC was subject to a detailed framework of scrutiny, including quinquennial reviews by relevant Departments' representatives under the chairmanship of a representative of DFID. Now, however, the situation is very different. The Government say that they have put sufficient safeguards in the new Bill to ensure the new organisation's accountability, without the need for the sort of parliamentary scrutiny that the Conservatives urged in 1999, when the Bill was enacted.

Let us examine the supposed safeguards. First, the Government will retain a 25 per cent. share in the CDC. However, a 25 per cent. share will not prevent changes in the investment policy and thus constitute a worthwhile safeguard.

The second safeguard is that DFID will be able to appoint two directors to the CDC board. However, two people do not constitute a majority so, on their own, they will be unable to protect the development focus.

Thirdly, whereas the Conservatives supported the statement of business principles that accompanied the 1999 Bill, there was nothing remarkable in that statement that other multinational companies could not adopt. By itself, the statement is a worthless safeguard for protecting the CDC's developmental role.

Fourthly, the memorandum and articles of association give no general protection to the role of development in the workings of the CDC. They simply state that there should be a focus on investment that benefits poor countries. That is too vague to be a sufficient safeguard. They also state that the CDC must adhere to the statement of investment policy—the sixth safeguard, which I shall discuss in a moment.

The fifth safeguard is the golden share. Article 51 of the memorandum and articles of association states that there shall be no change in the investment policy without the consent of the holder of the golden share. We welcomed that at the time, but as we argued then, the investment policy itself was already flawed.

The sixth supposed safeguard is the statement of investment policy. We argued at the time that that statement was far from sufficient to entrench development. It sets minimum levels of investment in poor countries, but it does not prevent a future CDC that wanted to increase its return on investment from investing only in the top-listed blue chip companies of poor countries. It does not specify how many companies the CDC must invest in or the type of company. Two or three minor provisions prohibit it from investing in certain types of company, but it can invest in any high-performance, high-yield company, regardless of whether it benefits the local economy or creates jobs. The CDC's activities could move in a sufficiently undesirable direction to contradict its original aims, without triggering a situation in which the Government could use their golden share.

In its examination, The Times claimed that the CDC's £80 million profit in 1999 had become a £41 million loss the following year. Ernest Mtamboh, a development economist who worked for the CDC for eight years, until he was made redundant recently, was quoted as predicting: Over the next 18 months, CDC plans to sell all its agri-business interests in Zambia … The long-term investments are going to be dumped in favour of short-term investments with a higher return…The employees won't know what's hit them. Jobs will be lost, productivity will fall, and the good labour practices and social responsibility that were the hallmarks of the CDC will go out of the window.

At the end of the Committee stage in 1999, my hon. Friend the Member for South-West Devon moved a new clause that would have strengthened significantly Parliament's ability to scrutinise the strategy and policy of the CDC. It would have sent a strict and stern message to those running the part-privatised CDC that we were looking over their shoulder, as it stated: The Corporation shall at the end of each complete financial year after the day appointed under section 3(3) make a report to the Secretary of State on its investments during that twelve month period and on its policy on future investments. It would have further provided that the Secretary of State should, as soon as practicable, lay such a report before Parliament.

My hon. Friend said at the time: The amendment is designed to bring back CDC's investment policy and decisions to the House of Commons once a year so that we may look over the Secretary of State's shoulder five or 10 years down the road. It constitutes another pressure on shareholders and directors in future: they will know that the House of Commons will consider decisions, and may debate them."—[Official Report, Standing Committee D, 22 June 1999; c. 105.]

The response of the Secretary of State for International Development was that it was sufficient that the Department would produce an annual report every year, which Parliament could debate. However, in general, the annual report has not been debated in Parliament and, in any case, it addresses a range of the Department's activities and does not concentrate on the CDC in detail.

The most recent DFID annual reports allocated very little space to the CDC. The 1999 and 2000 reports each allocated only three paragraphs to the CDC, which discussed the progress made towards the PPP. The paragraphs contained only the most vague information on the investment strategy being pursued by the CDC, despite the changes in its investment policy. They contained no information about the implication of those changes on development in poor countries. The 2001 DFID report contained only a single, solitary paragraph on CDC Capital Partners that repeated almost verbatim what was said the previous year.

Despite the critical tone that I have had to adopt while addressing this worrying situation, we are trying today to give the Government an opportunity to reconsider their undoubtedly sincere initial belief that they had made sufficiently strong arrangements to safeguard the original intention of the Commonwealth Development Corporation. The CDC enjoys total support among all parties today, as it has under successive Governments since its establishment in 1948.

I shall conclude with a constructive suggestion, which is perhaps not for me, nor the Minister, to make. As the Chairman of the Select Committee on International Development is present, let me air the possibility that the way in which the part-privatisation of the CDC is developing is a worrying trend that seems to confirm the worries of hon. Members of all parties that were expressed when the Bill was enacted.

Tony Baldry (Banbury)

We are inviting the CDC to talk to us in June.

Dr. Lewis

I am delighted to hear that. In the light of that invitation I hope that my hon. Friend will decide that it would be suitable for the Select Committee to investigate fully and report on how the process is evolving.

I am glad to have secured the debate. I apologise to the Minister if I have sounded like a Jeremiah; I am sure that he will do his best to dispel the gloom. I hope that he will accept the sincerity with which the Opposition are putting their case. We do so not because we should like to say that we told the Government so, but because we wish to ensure that when the CDC is fully and finally privatised we can say that we told the Government so and that they listened, and as a result we gained the best and not the worst of both worlds.

9.50 am

Tony Worthington (Clydebank and Milngavie)

I am pleased that the hon. Member for New Forest, East (Dr. Lewis) called for this valuable debate. As the hon. Member for Banbury (Tony Baldry) said, we members of the Select Committee have raised the issue and have arranged to talk to the CDC.

I shall discuss broader concerns as well as the CDC, which raises big issues. As a general policy, it was absolutely right that DFID should have led the attack on poverty and focused on education, health and social services as a way of creating long-term growth. However, that has led us to focus less on the current economic regeneration of countries such those in sub-Saharan Africa. Obviously, that regeneration is primarily the responsibility of the Governments of those countries, but more could be contributed from outside. My concerns centre on the fact that more than 80 per cent. of people in those very poor countries live off the land and are directly dependent upon it. Frequently, in travels with the International Development Committee one is not briefed on agricultural or land policy, or is not conscious that the countries have a policy. Surprisingly little attention is paid to that critical issue.

Let me give a couple of examples. The people of Uganda boast that they grow the best pineapples in the world, but Ugandan pineapples do not reach our supermarkets. I was not conscious that Ugandan agricultural policy is concerned with how to adapt Ugandan pineapples so that they will fit the shelves in Sainsbury's and will be marketable. In Ghana, the same points are made about cocoa as were made 50 years ago. The Ghanaian cocoa farmer gets a very low price and is frequently slaughtered by a fall in the price of cocoa, whereas in the prosperous world, when the market price of cocoa falls, we get value added chocolate production without reducing the price of chocolate. Any manufactured goods would be slaughtered by the tariffs that we impose on them.

Ms Abbott

On agricultural policy, the issue is not just the total number of people employed in agriculture, but the fact that those people work in the countryside. If agriculture collapses, they drift to the cities. Many of the people involved in agriculture cannot easily be deployed to computer inputting, or whatever DFID is promoting.

Tony Worthington

I agree completely. That is a neglected issue; all over the world, there is a drift into mega-cities that do not have the services, facilities or work to provide something better than working on the land. We must consider that inter-relationship. There have been examples of success, such as the amazing growth of flower growing in east Africa. That requires the most sensitive kind of manufacturing. It is sensitive to time and quality; nobody wants to buy a flawed red rose. That has been achieved in a part of the world that does not have a settled political atmosphere, which proves that such things can be done, but why have not enough of them been done in Africa?

I always thought that the CDC was about remedying market failure—going where ordinary financial investors would not go—because it is a myth that the market will always provide a cure. Sometimes people are crushed by the market, and intervention is required to prevent them and their countries from becoming poorer and poorer. Now, the CDC's remit is to bring in private capital—to make itself attractive to private investors. That is a different role.

The hon. Member for New Forest, East quoted some of the relevant figures: in 1996, the CDC invested £87 million in sub-Saharan Africa; in 2000, that had fallen to £56 million. Its chief executive, Alan Gillespie, states: CDC is today plugging the equity gap in healthcare, electricity generation, transport, mining and communications: CDC is a lead investor in a mobile phone operator in 13 African countries.

The CDC website refers to recent investments, such as an injection of $18 million into the east African power sector, the investment of $40 million in a pan-African telecom business, and CDC Capital Partners also invests in zinc in Zambia. However, there is no reference to investments in what the great majority of people are occupied in, which is agriculture. I find that difficult to accept.

In the annual report, Mr. Gillespie states: It was with considerable reluctance that the board concluded that many of our agribusiness investments, with which CDC has been proudly associated throughout its history, are unlikely to meet our minimum financial return requirements. Those investments, therefore, are now on a "for sale" rather than a "going concern" basis.

Mr. Gregory Barker (Bexhill and Battle)

Does the hon. Gentleman agree that although the shift from a rate of return of 6 to 8 per cent. to 25 to 30 per cent.—which the CDC is now promoting—might not sound like much, it is a seismic shift, and it totally precludes a whole raft of projects that have traditionally been managed by the CDC, and which nobody else would be available to finance? Does he also agree that by being so ambitious—rather than, perhaps, going for 15 per cent.—there is no difference between the CDC and any other commercial provider of capital?

Tony Worthington

I do not want to pronounce on the CDC's policies, because what it is doing now might make abundant sense, with regard to getting investment into new enterprises in such countries, where there might still be a market failure in relation to the private sector. However, although that might be the case, the needs of sub-Saharan Africa are so vast that a job is not being done in what may be seen as the traditional area. I do not wish to comment further on that until we have talked to the CDC about whether it sees real wealth creation resulting from its investments.

I return to agriculture. As the hon. Member for Banbury knows, the International Development Committee recently visited Ghana and Nigeria. We spent many hours driving through lush countryside, where it was difficult to recognise what was a central or local government strategy to create more wealth and food. There was no picture of anything other than growing things: there was no examination of markets, quality or how Ghana or Nigeria linked in to our world. I felt exactly the same last year in Vietnam and Cambodia. The only place that we visited where I felt that the land was farmed to its maximum efficiency was Bangladesh. Good work was being done there, and it was difficult to imagine it being done more intensively or to a better quality.

Agriculture is exceedingly difficult territory in which to cause change because landholding tends to be fragmented, and is becoming more so. In every country, it is intrinsic to inheritance and power. Farmers tend to be conservative, and huge values are attached to animals and goats—sorry, not to goats, to food. Goats are on my mind because I saw them everywhere, but they were not being used in an economically effective fashion. Their protein, milk and hide were not used; they were just around as dogs and cats are in this country.

I am surprised that we never receive briefing on the anthropology of those societies, because it is crucial to the development of communities. One must he careful and considerate about major agribusiness moving in, further stripping people of power and leaving them jobless. For example, there is a current controversy over a planned development project, "Vision 2020", in Andra Pradesh, which has been promised £65 million of British aid. The upside is that it promises to bring millions of poor farmers into the 21st century through the consolidation of farms, the mechanisation of agriculture, irrigation projects, new roads and the introduction of genetically-engineered rice. The state Government promises also to eradicate poverty. However, the big downside is that those dependent on the land will fall from 70 per cent. to 40 per cent. and 20 million people will have to find another source of income. I mention that project neither with approval nor disapproval because I have not studied it, but it illustrates the complexity, the sensitivity and the importance of the issue.

The CDC is clearly no longer seriously considering agriculture as a major area of development and wealth creation because it cannot achieve its targets through its work. However, somebody should be seriously considering the matter, because it is being badly ignored and our international work is underpowered. At both British and international level it is difficult to identify who is considering macro-agricultural policy and its translation into wealth creation at farm level.

At international level, the European Union has been a major enemy of developing countries through its tariffs and its policies of dumping excess food. In our studies of EU development policy, I do not recall any agricultural projects that have attracted praise. The UN Food and Agriculture Organisation should be responsible for agriculture, but, in a competitive field, it has about the lowest profile of any UN organisation. That has never been brought to the attention of the Select Committee on International Development. UNFAO claims to be doing such work on its website: The Food and Agriculture Organization of the United Nations was founded in 1945 with a mandate to raise levels of nutrition and standards of living, to improve agricultural productivity, and to better the condition of rural populations. However, I have never heard that quoted in a business sense. Research may be going on, but in my extensive travels I have not come across the FAO as part of a country's agricultural policy.

Today's debate allows us to raise our concerns about agricultural policy in the developing world and the contribution it makes to poverty alleviation and wealth creation. I always thought that the CDC was our major contribution, but it has clearly turned away from such work to help the spread of mobile phones, or some other economic activity. That might be profitable for those who control companies, but it will not increase the incomes of the poor. I should welcome the Minister's views.

I am not saying that what is happening to the CDC is wrong. The House made a decision, and it is early days yet; the CDC deserves time to be tested out against the Government's policies. However, there is a vacuum to be filled in the agricultural policies of developing countries. I look forward to the Minister's response.

10.5 am

Tony Baldry (Banbury)

As always, I agree with almost everything that the hon. Member for Clydebank and Milngavie (Tony Worthington) said. I start with a confession of past errors. I think that I made a mistake, when I had the responsibility that the Minister now has, when I, in effect, allowed the Commonwealth Development Corporation to change its name to the CDC. Presentation is sometimes important, and, with the benefit of hindsight, I think that making that change resulted in the organisation losing some of its focus.

The background is simple. In about 1996, the Commonwealth Development Corporation came to Baroness Chalker and me, as we had ministerial responsibility for it at the time, and said, "Look, there are many poor countries not in the Commonwealth and many Commonwealth countries that are not poor. Our present remit prevents us from investing in poor countries not in the Commonwealth. The geographical spread of Commonwealth countries is not even across the world—there are many Commonwealth countries in the Caribbean but few in Latin America. Please may we have the freedom to invest in poorer countries?" That made eminently good sense, so the legislation was amended to enable the Commonwealth Development Corporation to invest in poorer countries, wherever they might be. The logical consequence was that it asked to change its name to the CDC. I think that that has, in part, lost it its development focus.

I shall be slightly more critical than the hon. Member for Clydebank and Milngavie about the CDC's present performance because the concerns need to be put on the table, and that will give the CDC and the Minister the opportunity of rebutting those points if they can. I think that everyone in this House supported the Prime Minister when he said recently to the Nigerian National Assembly that Britain has a special responsibility to Africa and that aid is needed to invest in creating capable states, to encourage economic growth and to invest in public services. However, I am concerned that the direction of the CDC is not to invest in the areas that one would see as consistent with the Prime Minister's comments. It is not investing in education or in agribusiness, in which 85 per cent. of people in poorer countries work and in which they look more likely to succeed in trade.

I entirely agree with the hon. Member for Clydebank and Milngavie about that. We see the CDC investing away from poorer countries, away from sub-Saharan Africa. Investment by the CDC in that region in the last two years for which figures are available, 1998–2000, fell by 13 per cent. Some countries have seen investment collapse completely. Malawi, which received £9 million of CDC investment in 1996, now receives none at all. Swaziland received £19 million from CDC investment in 1996, but by 2000 it was receiving absolutely nothing. Investment by the CDC in sub-Saharan African countries has plummeted in recent years by more than £30 million.

The CDC's annual report claims that the reason for the change is that CDC believes that if it is able to achieve its mission of realising attractive returns to shareholders this will have the effect of also assisting social development". I am at a loss to see how getting attractive returns for UK shareholders per se will necessarily assist social development in poorer countries in Africa. Until it can be demonstrated to the contrary, the suggestion must mean that CDC directors have simply decided to put profit before any poverty focus. As my hon. Friend the Member for New Forest, East (Dr. Lewis) said a few moments ago, part of the concern is that, if the CDC is no longer looking for shareholder returns on equity investments of between 6 and 8 per cent. but of at least 20 per cent. to attract partners, it is not surprising that it has decided not to invest in agribusiness and agri-economy, which are very important for poorer countries.

The CDC's directors have created some of the problems. Through equity investment, they have created a financial return hurdle that is too high. The CDC now needs to increase its return considerably to attract private investors. Indeed, in the corporation's report in 1997, the chief executive said: The returns will need to be enhanced, and this will require us accepting risks in the businesses in which we invest for a commensurate increase in rewards.

Equity in developing countries is elusive. As the Secretary of State for International Development admitted in evidence to the International Development Committee, equity is a scarce resource in many developing countries. In its eighth report to the previous Parliament, the Select Committee concluded: Until the downward trend in the Commonwealth Development Corporation's returns is significantly and sustainably improved, it seems unlikely that the Public/Private Partnership will be a commercially viable venture.

Unfortunately, the warnings of the Select Committee have proved to be the case. Equity investments at the CDC have gradually increased since 1998; in contrast, return on capital employed at the CDC has dramatically dropped from 3.6 per cent. to a deficit of 4.7 per cent. during the same period. Even more staggeringly, the operating profit after tax fell from £57 million in 1999 to a deficit of £41 million a year later. Those figures do not make the CDC look like a sustainable business. Obviously, the downward trend considerably affects its ability to attract private partners.

One is concerned about some of the projects that the CDC has invested in. For example, it now appears that the Konkola project in Zambia faces a £20 million loss, unless it can find a new owner to replace Anglo American, which pulled out last month. A little while ago, I received a letter on the issue from the executive vice-president of Anglo American, who gave several reasons why they had withdrawn. One questions why the CDC continued to invest in the scheme, and other examples of similar projects raise questions about the CDC's collective judgment in investing.

Also, questions are raised about the CDC's commitment when one considers where it is closing offices and opening new offices. It is closing offices in countries such as Uganda and the Ivory Coast but opening offices in places such as Egypt and Mexico. The Economist noted last year that the CDC was moving from agri-economy to property and banks: New regional offices, manned by people who know more about making deals than growing pineapples, have opened in Egypt, China and Mexico.

Why is the CDC opening a new office in China? Admittedly, China contains a large number of poor people, but it does not contain the poorest of the poor. Its gross domestic product rises by about 9 per cent. each year. It is even excluded from the World Bank progress reports on the 2015 targets, to avoid distorting G8 countries' performance. I suspect that the only reason that the CDC has opened an office in China and closed offices in sub-Saharan Africa is that it hopes to make a better return on capital in China.

Recently, I was told by a former employee of the CDC: Additionality is off the CDC agenda—almost all technical expertise has been fired—agriculturalists, business managers, engineers. Even the environmental specialists have gone! How on earth does the sacking of engineers and environmental specialists enhance the social development that the CDC professes? It does not. The former employee—a perfectly rational person, who I have known for more than 10 years—continued: Dedicated development orientated business men have been substituted by a cosy coterie of ex Bankers and naïve expensively educated MBAs. Is this the Goldman Sachs of the developing world? Hon. Members should be concerned by both those statements on the direction in which the CDC is going.

The Secretary of State has a golden share in the CDC which was one of the earlier parts of this country's work in helping poorer countries—the better part of the legacy of the Attlee Government of the post-war years. I hope that the Minister will reassure the House that he and the Secretary of State are taking a close interest in what the CDC is doing, to allow confidence that that is still part of the Department's work in tackling poverty in the poorer countries of the world. Otherwise, the CDC will simply become another venture capital fund—there is a venture capital fund called CBC. One wants to be confident that the CDC will not become just like any other fund in the City of London, running no fewer risks or gaining no more rewards.

We have always been very proud of what the Commonwealth Development Corporation has achieved. Of course, it was right that it could help poorer countries outside of the Commonwealth, but we hope that Ministers are confident that the CDC is determined to help people in poorer countries and is not just concerned with the return on its capital.

10.18 am

Ms Diane Abbott (Hackney, North and Stoke Newington)

I begin by congratulating the hon. Member for New Forest, East (Dr. Lewis) on securing an important debate. We can all agree that the role and work of the CDC has not been sufficiently scrutinised since the decision was taken in 1999. The hon. Gentleman seemed alarmed when I sat on this side of the Committee Room. Although we are physically in Committee Room 10, philosophically this is a Westminster Hall debate, and such debates are normally conducted on non-partisan lines. I would like to participate in a non-partisan spirit.

I remember the 1999 debate very well. There was little controversy, and the House was united in believing that the matter was technical and would better enable the CDC to fulfil its developmental remit. In that spirit, the measure was passed with questions asked, but no opposition from either side of the House. The evidence is partial and anecdotal, but it seems that under the new dispensation the CDC has moved from its developmental remit. It seems that way because we do not have enough information. The avenues are not open to the House to allow us to scrutinise properly what the CDC is doing. We know that the CDC is withdrawing from agriculture throughout the world because it does not pay enough. The return that the CDC wants cannot be obtained from investment in agriculture.

I want to add my voice to those of hon. Members who have said that the Government should scrutinise their policy on agriculture and development. In addition to employing a large number of people in third world societies, agriculture is often the anchor of social stability. I am chairman of the all-party parliamentary group on the British Caribbean and my family comes from there. I visit the Caribbean most years and will be there in a few weeks. What has happened following the collapse of agriculture in rural Caribbean countries?

Mrs. Marion Roe (in the Chair)

Order. Will the hon. Lady speak a little more loudly? I am having difficulty hearing her and others are also indicating that they cannot hear her. Her points are important and we would all like to hear what she is saying.

Ms Abbott

It is not often that I am accused of not speaking loudly enough.

Agriculture is the anchor of stable civil society throughout much of the third world. When traditional rural agriculture collapses, those who were employed in agricultural pursuits cannot diversify into computer inputting. They cannot even diversify into growing flowers because the new forms of agriculture do not employ labour in the same numbers as traditional agriculture. What often happens in Africa and the Caribbean is that people drift to the city with the resulting problems of instability. When legitimate agriculture does not develop and is not allowed to flourish, people all too often diversify into illegitimate agriculture. There is a clear relationship between the collapse of agriculture in the Caribbean and South America and a move into drug production. I only wish that the Government, who talk so much about joined-up thinking, would apply some joined-up thinking to the relationship between the lack of an agricultural development policy and the war against drugs. Without a coherent policy on developing and sustaining agriculture in the third world the international war against drugs is doomed to failure.

As chairman of the all-party parliamentary group on the British Caribbean, I was privileged to lead a delegation to Belize in the Caribbean last year. I heard bitter complaints from all sides about the role of the CDC. At that time it was a major investor and employer in citrus production, which is a key anchor of stable civil society in Belize, as elsewhere. The CDC was in the process of selling lock, stock and barrel its holding in citrus production. Many people—not just politicians, but agriculturists and workers in citrus production—could not understand why the CDC was selling, helter skelter, its interests without even trying to identify whether local co-operatives and growers could step in. They wondered how it could call itself a development corporation when it was selling off a key industry in Belize apparently without thought for the short and medium term developmental consequences of that sale to the people of Belize. It is all very well for the CDC to have to obtain the maximum return on its investments to be viable, but the example in Belize is that the CDC makes short-term, shareholder-driven decisions to the exclusion of any consideration for the short and medium-term development cost.

Belize, where the situation has not been reconciled, is an example of the decisions that the CDC is making in its new manifestation as a sort of Goldman Sachs of the development world.

I can only repeat what has been said earlier. It must worry any hon. Member who is concerned about development and the third world that investment in sub-Saharan Africa by the CDC has dropped by £30 million.

It is difficult to understand the logic of closing down offices in Jamaica, the Ivory Coast and Uganda and opening them up in China. China is not short of investment. The logic of the CDC opening an office there is wholly commercially driven. I share hon. Members' concern about what is happening to the CDC, which now appears to be wholly driven by the interests of shareholders. I share their concern about what is happening as experienced agriculturalists, engineers and business managers leave to be replaced by people who understand the market and about making deals.

If we are serious as a Government about raising the standards of living of people in sub-Saharan Africa and Africa as a whole, in the Caribbean and all those parts of the world that have historic links with this country, we must take the role of the CDC more seriously and subject it to more scrutiny. Yesterday, the whole country was swept up in the emotion of the Queen Mother's funeral. But if the Queen Mother and the royal family mean anything, they mean a commitment to those parts of the world that were part of the empire and are currently part of the Commonwealth. I need to be reassured by Ministers that the CDC's current policies firstly are subject to sufficient scrutiny by the House and, secondly, fulfil our historic and moral responsibility to the Commonwealth.

10.26 am

Mr. Andrew Rosindell (Romford)

Thank you, Mrs. Roe, for calling me to speak in this important debate. I congratulate my hon. Friend the Member for New Forest, East (Dr. Lewis) on raising this vital issue. The speeches this morning have shown an enormous degree of consensus. I reiterate the comments of the hon. Member for Hackney, North and Stoke Newington (Ms Abbott): yesterday we witnessed an immense display of unity as the nation and Commonwealth countries throughout the world came together to commemorate the passing of Her Majesty the Queen Mother.

If the Commonwealth Development Corporation means anything, it is to enable Britain to support countries to which we are historically and traditionally linked. They are the poorest countries in Africa and other parts of the world. I hope that everything we do is designed to help them, rather than simply to make profit out of the CDC. That is why there is considerable concern about the effect that Government policies have had on action on the ground. The part-privatisation of the CDC is ill thought out. It is having detrimental effects on development assistance to poorer countries, promoting headlines such as that in The Times on 2 February 2002: Privatisation of Atlee's aid agency hits the poorest of the poor". No Labour Government could be proud to see that.

I should like to emphasise many of the comments that my hon. Friend made about the effects of the part-privatisation of the CDC. It is clear that the CDC in the new climate, even before the PPP is fully completed, is changing its investment strategy to the detriment of the poorest countries. Take, for example, the fall in investments in sub-Saharan Africa, as reported in Hansard on 14 February. The region's share of all poor country investments fell from 56.9 per cent. in 1998 to 43.3 per cent. in 2000. Figures in Hansard on 12 February show that the value of CDC investments in the region has fallen massively—from £87 million in 1996 to £56 million in 2000. Investment in Malawi fell from £9 million in 1996 to nothing in 2000. Similarly, investment in Swaziland went from £19 million in 1996 to no money whatever in 2000. Furthermore, as my hon. Friend the Member for New Forest, East said, CDC offices have closed in many countries, including Malawi and Uganda, which, coincidentally, have recently received no new investment.

The Government's answer has been not to compensate such countries with overseas assistance, but to pretend that everything is perfectly okay. The Secretary of State may promise the House that the new-look CDC will retain its development focus, and he may note the Government's majority share in the CDC. That does not, however, hide the fact that investment in the countries that I listed has gone down and, in some cases, disappeared altogether.

Mr. Barker

Does my hon. Friend agree that the CDC is sometimes the only provider of real equity finance in sub-Saharan countries such as Swaziland? In places such as China, however, its capital is but a drop in the ocean.

Mr. Rosindell

I thank my hon. Friend for his comments, and I endorse his sentiments.

Generally, I would be the first to agree that politicians and Governments should not intervene in privately run companies. I should have thought it obvious, however, that at least some Government action was necessary given the crisis in CDC funding. That there is a crisis is clear, in particular, from the fact that the Government demanded at least an 8 per cent. return on CDC investments before partial privatisation. Returns are now falling drastically below that level, which diminishes the attractiveness of projects to new private investors.

Hon. Members on both sides want the CDC to work, but it is clear from the facts and figures available that it will not. An article in The Times on 2 February demonstrated that the 10 million people who live in grinding poverty in Zambia—the very people whom the CDC was designed to help—feel that the corporation has abandoned them. That is too significant to be ignored.

When the evidence is so clear, there is no excuse for the Government not to take hold of the situation. They must ensure that the development focus and intended investment strategy are not undermined by pure profit motives. To achieve that, they must focus on several core issues, including using the safeguards available to them to ensure that the CDC achieves what it was created to do.

It would be catastrophic for the CDC to lose its development focus, and increasing parliamentary scrutiny of the investment strategy would be an option worthy of consideration. Too many lives are at stake and too many people are involved for us to pretend that nothing has changed. We have an international duty, for which DFID takes responsibility. It is time for DFID to be bold enough both to admit that the evidence shows that its scheme is not working and to respond accordingly.

10.34 am

Norman Lamb (North Norfolk)

I congratulate the hon. Member for New Forest, East (Dr. Lewis) on securing this important debate, on which a common view has been expressed by hon. Members who have spoken so far.

I was not in Parliament when the Select Committee on International Development first considered the Government's proposals in 1997–98, and when the Bill facilitating the partial privatisation was considered, so I do not have the same track record as other Members, including my hon. Friend the Member for Richmond Park (Dr. Tonge), whose contribution has already been referred to. However, it is regrettable that the Government seem to have ignored the Select Committee's warnings about the viability of the plans and their potential negative impact.

As a member of the Standing Committee that considered the International Development Bill, I was impressed by the Government's focus on poverty reduction and sustainable development, considering that so much aid has been misused and misdirected in Africa and elsewhere over the years. It was my perhaps somewhat naïve assumption that that approach would inform all Government action in relation to the developing world, not just the giving of aid. The hon. Member for Hackney, North and Stoke Newington (Ms Abbott) rightly drew attention to the absolute imperative for joined-up thinking on such issues. However, since the Committee stage of the International Development Bill, the issue of the Tanzanian air traffic control system arose shortly after this country wrote off a substantial amount of debt. That seemed to be contrary to the core of that Bill—something that has clearly been recognised by the Secretary of State for International Development.

Some hon. Members have already referred to the article in The Times on 2 February. I was horrified when I read that report, which highlighted the failure of CDC Capital Partners to attract interest from the private sector, and, more importantly, the impact of the change of investment strategy on the poorest nations. Why should we be so concerned about that? The original purpose of the CDC was to operate a pioneering approach in the private sector, with a mandate to go where private capital would not normally go—to where it can make a real difference. It has been operating in some of the poorest countries in the world, where the absence of financial markets meant that it was impossible to borrow to start a business. It has helped thousands of people, particularly in the agricultural sector. It has been innovative and has a good record both on labour practices and on social responsibility. It has been used as a model for the creation of the World Bank's International Finance Corporation.

All that is now threatened by an investment strategy that requires much higher rates of return. It is self-evident that if a higher rate of return is required, something must give, and one ends up investing in projects in areas that already attract plenty of private sector interest, such as leisure, property, communications and shopping malls. The danger is that such work ceases to have any real development value because there is a conflict between securing a high rate of return on investment and achieving development priorities. The two may sometimes match, but we must recognise that there is a conflict of interest.

What has actually happened? It seems to me from the statistics that have already been quoted that there has been a shift of new investment away from the poorest countries towards less poor or middle-income countries, moving investment in the opposite direction from the central thrust of the International Development Bill. As we have already heard, offices are closing in some of the poorest countries and opening in less poor countries. In the financial year ending 2000, the CDC failed to meet its target of 50 per cent. of new investment in sub-Saharan Africa and south Asia. I shall not repeat the statistics because time is short, but money invested even in the poorest countries is too often going to those projects with a high rate of return—and money is available for those projects from other sources. CDC Capital Partners is selling off its agricultural investments. The agribusiness portfolio fell in 2000 by £75 million or 35 per cent, and all agribusiness interests in Zambia are being sold.

The Government assured the Select Committee in 1998 that agribusiness would remain a priority. However, although CDC Capital Partners' annual report for 2000 stated that there were six priority sectors, did not include agribusiness. The report stated: Many of our agribusiness investments, with which CDC has been proudly associated throughout its history"— that is the great irony— are unlikely to meet our minimum financial return requirements". Yet Ernest Mtamboh, the development economist with the CDC until, like many others, he was made redundant, pointed out: At a time when the UN Food and Agriculture Organisation is predicting a food deficit across most of Africa for the next 15 years, the CDC is achieving record yields for grain and maize and getting premium prices for its coffee—these business are not losing money". It seems that the rate of return is not sufficient to interest private investors. Is the Government's commitment to investment in agribusiness still in place?

I said earlier that the International Development Bill focused on sustainable development. However, the new investment strategy and the fact that investments are not legally obliged to achieve sustainable development or positive results for the poorest people suggests a worrying shift. Examples have already been given, but I shall mention two more. A rural management training school in Mnanga in Swaziland has closed, and the building sold for use as a fee-paying school; it seems that training is no longer part of the CDC's core business. Friends of the Earth has been critical of a big CDC investment in palm oil plantations in Papua New Guinea, saying that it is harsh on farmers and the environment; is that where the CDC should be investing its money? We have already heard of the Konkola copper mine investment in Zambia, which has been criticised by Oxfam and others.

It is now time for an inquiry, to be undertaken either by the International Development Committee or an outside body, into three separate but related issues. I urge the Government to consider the following matters carefully. First, we need to review the routes that the Government have chosen. Does the direction in which the CDC is going have potential development value? In the light of experience, is it not fatally flawed? Secondly, we need to consider CDC's performance and the decisions that it has taken. We have heard about the lack of scrutiny of the work of the CDC, but its decisions seem to be not only having a negative impact, but failing to achieve what it has set out to do.

Thirdly, we need to consider whether the provisions of the International Development Bill should be extended to focus on sustainable development and the alleviation of poverty and to cover a wider range of dealings with the poorest developing countries. If other policies and strategies, such as the control of arms exports, the sale of arms, tariffs and quotas, and the activities of the CDC, conflict with the central duty in the International Development Bill, the danger is that that duty will become little more than a fig leaf.

10.44 am

Mrs. Caroline Spelman (Meriden)

I shall try to keep my remarks brief, because we want to hear from the Minister. However, I do not wish my brevity to suggest that, as Her Majesty's loyal Opposition, we were not keen to make a concerted effort to secure the debate. I am glad that my hon. Friend the Member for New Forest, East (Dr. Lewis) was successful, because he cares deeply about international development and speaks about it with real concern. The debate has been interesting because hon. Members from all parties have spoken in a tone of sorrow, without scoring political points, and I should like to continue in that vein.

It is poignant that we are meeting in Committee Room 10, rather than in Westminster Hall, on account of the funeral yesterday of the Queen Mother, whose achievement as head of the Commonwealth should be placed on record. In the light of that, we should be aware that what is happening to the CDC, and the change that Commonwealth citizens are experiencing, is detrimental to the spirit of the Commonwealth. It takes a lot for an international development issue to reach the front page of a broadsheet newspaper, our national media having been made aware not of a massive natural disaster but of a problem that is quietly getting worse and worse, affecting some of the poorest in the world. The comment of the former Agriculture Minister for Zambia, Guy Scott, regarding the decision of the CDC to sell off one of its projects—a 26,000-acre farm in southern Zambia, where the workers had set fire to their crops in dismay that it was being sold off for just £2.1 million after £8.5 million had been invested in it—reflects on this country and on the Commonwealth. He said: For the CDC to be pulling out of this sector in search of short-term returns means the end of British foreign aid. We cannot deny that the shift—which we have seen demonstrated statistically today—from helping the poorest and the countries of sub-Saharan Africa is detrimental to those whom the Commonwealth set out to help.

A number of hon. Members have emphasised the significance of withdrawal from agricultural investment. I have worked in agriculture for 15 years and I am sad to say that our farmers would be happy to see a return of 8 per cent. on their investment; times are hard even in this country. The CDC's change of investment strategy is resulting in the developing world in a withdrawal from agricultural production, which, as the hon. Member for Hackney, North and Stoke Newington (Ms Abbott) said, is the bedrock of stability in rural societies. Where will the investment come from if the CDC withdraws from those areas? We are about to debate change in the terms of trade for agriculture at the talks in Doha. That is not the moment at which to withdraw investment from agriculture in developing countries where, through trade liberalisation, opportunities might well open up.

There is a moral imperative to bring to the Government's attention the need for action in an area where something is going wrong. We gave the benefit of the doubt to the Government's assurances that the development focus would not be undermined; however, there is evidence that it is being undermined. Therefore, we are here to ask the Government to think again—perhaps to rework the model of the partial privatisation. In July 1999, during the passage of the International Development Bill, my predecessor placed on record his misgivings. However, he gave the Government the benefit of the doubt in order to see whether they could make it work. There is evidence that rethinking is needed. I look forward to hearing what the Minister has to say. It might sound counter-intuitive for a Conservative to be arguing that the paramount concern of the CDC should not be about getting the very best market return for its capital. However, we are very concerned that a development agency with a good reputation is abandoning its principles at the expense of the world's poorest. In July 1999, my predecessor as shadow Secretary of State for International Development, my hon. Friend the Member for South-West Devon (Mr. Streeter), said The jury is still out on the Government's Bill…and I continue to hold grave reservations."—[Official Report, 14 July 1999: Vol. 335, c. 529.] I share those reservations and, as a jury, our verdict is not in the Government's favour. We hope that they will listen again and we are here to help them through the means described by my hon. Friend the Member for Banbury (Tony Baldry) and through the assistance of the International Development Committee, to prevent things from going seriously wrong. There is still time to heed those words and put the matter right.

10.50 am

The Parliamentary Under-Secretary of State for International Development (Hilary Benn)

May I first join other Members in congratulating the hon. Member for New Forest, East (Dr. Lewis) on securing this debate on this important topic? This is an example of the House scrutinising the CDC and its work and I welcome that. We are meeting here in Committee Room 10 because of the events of the past few days and this is the first opportunity that hon. Members have had to pay tribute to the staff of the House for the enormous amount of hard work that they put in to make possible the visit of the many people who passed through Westminster Hall.

I also welcome this debate because it gives me the opportunity, in the short time remaining, to respond to the many points raised and to deal with some misconceptions, particularly those created by the article in The Times. Unfortunately, time does not permit me to deal with all of them, but to correct just one point—the chief executive, Alan Gillespie, does not work three days a week, but full-time. That is one of many inaccuracies in that article.

As hon. Members will be aware, when the Prime Minister announced, in October 1997, the Government's intention to turn the CDC into a public-private partnership, the aim was to encourage more private capital to invest in poorer developing countries. It was recognised at the time that that measure did not constitute an abandonment of the CDC's role, but the beginning of a new chapter in carrying out that role in rather different circumstances to those that existed when the post-war Labour Government founded the CDC in 1948.

My first point—one that has been raised by several hon. Members and to which I shall return at the end of my speech—is that in the world of investment finance, the CDC continues to be distinctive, seeking to show that responsible investments can be made in markets that investors too often shun as risky, and helping to encourage greater investment in countries that need it. In the longer term—this is one of the motivations behind the change—its aim is to help poorer countries participate more equitably in the world economy.

It is essential that private capital flows benefit poorer developing countries and that those countries do not become increasingly marginalised in relation to the growth of the global economy. Although we clearly want wealth to be more equitably distributed, the truth is that far too often poorer countries are starved of the investment they need. For example, overall foreign direct investment in developing countries increased dramatically in the 1980s and 1990s, but that investment was not evenly distributed. The lion's share went to Latin America and the Caribbean, Europe and central Asia, east Asia and the Pacific.

In 2000, only 4 per cent. of the foreign direct investment in developing countries went to low-income developing countries. That is the scale of the challenge that we face. Too little private capital goes into the poorer developing countries. That is why the CDC, with its specific and unique investment criteria focusing both on poorer countries and on sub-Saharan Africa and south Asia, is so important.

Africa loses 40 per cent. of the savings that it generates. That money flees the continent every year. That is the scale of the challenge. The public-private partnership concept is not just about accessing new sources of funding, but about the CDC demonstrating that it is possible to make commercially worthwhile investment. The effect needs to be judged over the whole business cycle. That was recognised by the former Chairman of the Select Committee, Bowen Wells, when he said: Some things will change radically as a result of the Bill…The CDC will have to look for a much higher return on equity".—[Official Report, 14 July 1999; Vol. 335, c. 530.] The Conservative spokesman acknowledged that at the time. I have heard some confused arguments during the debate. Some people suggested that the rate of return achieved was currently too low, and others argued that the rate aimed for was too high. I am not sure where we could find the balance. If we are to have a demonstration effect, the CDC must operate successfully and commercially within the framework.

It is important to make a point about selling on. To judge from some arguments that hon. Members have made, it is almost as though when the CDC moves out of a business, as it has traditionally done, the business disappears into the ether. The CDC has sold on, rather than sold off, several of its previous investments, and it is true that those include some of its agribusiness interests in Africa. In case hon. Members have the impression that that means that the CDC has completely lost interest, it is important to acknowledge that it still holds 80 per cent. of its agricultural portfolio. It continues to invest in agribusiness, such as in sugar in Swaziland, rubber in Cote d'Ivoire, arable farming in Zambia and tea in Tanzania.

Some important points were made about the role of agriculture in development. I want to correct the impression given by some contributors that DFID's broader interests no longer include agriculture. A vast amount of an increasing DFID overseas aid budget supports rural livelihoods, for precisely the reasons alluded to by my hon. Friend the Member for Hackney, North and Stoke Newington (Ms Abbott). When considering the balance of where people live in developing countries, we have to recognise that all the growth during the next 25 years will be in the numbers that live in towns and cities. A shift is taking place, so it is not unreasonable that the CDC and others should respond to it.

Some argue that the CDC must continue to stick to non-commercial investments that perform poorly. In the end, that means that the concept of trying to encourage more private-sector investment in the poorest countries is doomed to fail. It is a counsel of despair. That is why the CDC is moving into other aspects of investment. Telecommunications was given as an example, and it will be an engine of economic growth and development. We have to pause for only one second to think of our own industrial history. We have lifted many people out of poverty in Britain during the past 300 years, and we have only to consider the mechanism that achieved it.

The CDC is not like any other investment company, because it operates within the investment policy in place, which cannot be changed without the approval of the Secretary of State. Both investment objectives—that 70 per cent. of investments have to benefit poorer countries, and that each year 50 per cent. of the CDC's new investments should be in sub-Saharan Africa and south Asia—were comfortably exceeded in 2001. Eighty per cent. of investments went to poorer countries, and 69 per cent. of the CDC's new investments were in sub-Saharan Africa and south Asia. I ask hon. Members to name another worldwide investment company that invests as successfully in poorer countries as the CDC has demonstrated that it does, including in its performance in 2001.

Mrs. Spelman

Does the Minister accept that if the target for the level of investment in sub-Saharan Africa were set below the level in place before the investment strategy was changed, that target would be likely to be achieved? The target is lower. In 1998, 72 per cent. of investment in poor countries went to sub-Saharan Africa.

Hilary Benn

The CDC remains committed to Africa. For example, it invested £216 million in 81 separate businesses in sub-Saharan Africa during the past three years. In 2001, almost half of the CDC's new investments were to be found there. I welcome the scrutiny offered by today's debate and hope that the House will join me in congratulating the CDC on clearly having met both investment objectives in 2001. The CDC plays an important role and it is right that there should be scrutiny, but we must crack the fundamental problem—private capital does not want to invest in the poorest countries. However, the purpose of the exercise is for the CDC to provide a lead. Then those countries will get the chance to do what we take for granted—to earn a living.